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News Article

Justice Department, Insurance Company Settle Fraud Charges

WASHINGTON, Dec. 19, 2002  A life insurance firm accused of defrauding service members today settled a civil complaint filed by the U.S. Justice Department.

As part of the settlement, Academy Life Insurance Co. agreed to pay more than $160 million in penalties, costs and restitution, according to a Justice Department news release. The company also agreed to never again sell another insurance policy in the United States and never again ask DoD for permission to conduct business on U.S. military installations, according to the release.

Academy Life also has to pay $2.7 million to persons who canceled their policies from 1991 to 1998. This provision affects an estimated 110,000 people, DoJ estimated.

Justice's complaint alleged that Academy insurance agents misrepresented themselves to service members from 1991 to 1998, that Academy paid the Non-Commissioned Officers Association almost $16 million in undisclosed royalties, and that Academy violated DoD regulations governing solicitation practices.

The agents used titles and spiels that implied they were independent, objective "counselors" working on behalf of the NCOA as a service to members. In fact, they were beholden only to Academy, and their only income was commissions earned from selling company insurance policies.

DoJ's complaint said Academy Life from 1993 through 1998 sold more than 92,000 new life insurance policies to U.S. service members and their families throughout the world and received more than $200 million in premiums.

Charles S. Abell, principal deputy undersecretary of defense for personnel and readiness, noted in a statement released today, "The Defense Department has been and is working closely with the Justice Department to protect service members and their families from businesses that engage in unethical or deceptive practices.

"Today's announcement by the U.S. Attorney's Office in Philadelphia should serve as a warning shot to those who would try to defraud members of our military family," he concluded.

DoD imposed a three-year ban on Sept. 11, 1998, that prohibited Academy Life from doing business on any U.S. military installation in the world.

Local bans are common because military commanders have the right and responsibility to bar companies from their installations for many reasons. The 1998 ban was thought to be the first ever imposed DoD- wide.